Small airports gamble with revenue guarantees

(AP) Road-weary travelers forced to drive two hours to St. Louis or Kansas City to catch big-city flights were ecstatic when Delta Airlines announced plans to expand service at a regional airport in central Missouri.

University of Missouri officials in Columbia, where the airport is located in the heart of the state, eagerly awaited the new Columbia-Atlanta route. Their excitement was short-lived.

Weeks after city leaders boasted in mid-October about luring American Airlines to Columbia with a two-year, $3 million revenue guarantee, Delta quickly decided to pull out of the market, saying it could no longer operate in Columbia at a competitive disadvantage. The Atlanta-based airliner held firm after Columbia floated a deal similar to its pact with American, partly because the city had first committed its available incentives to American.

From northern California to the Florida Keys, the airline courtship and subsequent break-up is both familiar and cautionary to local elected officials and business brokers who say that airlines are increasingly insisting on local government subsidies before they will expand service to smaller cities and rural areas.

We wanted a level playing field, Delta spokesman Anthony Black said of the Columbia deal, which would have required the airliner to provide larger jets and wouldn't have started until 2014.

In Texas, Fort Worth-based American Airlines recently agreed to revive commercial service at the Jack Brooks Regional Airport in Nederland, which had been dormant since United Airlines closed its regional jet service, Colgan Airlines, over the summer. The return required a $1.5 million guarantee from local governments in Port Arthur, Beaumont and other coastal Gulf of Mexico communities in a region where two larger airports sit just 90 miles away in Houston.

I don't think it would have happened without the guarantee, said Mark Rantala, executive director of the Nederland Economic Development Corp., which helped broker a deal that assures the airline at least receives minimum profits if it doesn't fill enough seats. There are enough places where they can build traffic where they don't have to take the risk.

Rantala and his Missouri counterparts emphasized that their contracts differ from the taxpayer-backed federal guarantees under the national Essential Air Service program, which since 1978 has subsidized flights to more than 100 communities from Muscle Shoals, Ala., to Laramie, Wyo., along with dozens of remote Alaskan towns. Republicans in Congress last year targeted the program for elimination, but it survived budget negotiations.

Still, local boosters acknowledge the risk. Three hundred miles from Columbia, the University of Illinois quickly lost both money and air service after a 2011 deal with Vision Air for twice-weekly flights from Champaign-Urbana to Punta Gorda, Fla., collapsed at the university-operated regional airport. The flights were available for just three weeks.

Columbia Mayor Bob McDavid said the city was told by its airport consultant that a $1 million guarantee gets you on a list, $2 million might get you a phone call and a $3 million guarantee could get you a deal.

McDavid said the city has lost innumerable corporate investments due to its inadequate air service. Until 2010, when Delta added limited jet service through Memphis, Tenn., it had been a decade since Columbia passengers could travel on bigger planes on now-defunct Ozark Airlines, which offered flights to Chicago and Dallas.

The city is ponying up $1.2 million toward the revenue shortfall fund, with the local Chamber of Commerce providing $600,000 and county government another $500,000. The University of Missouri is also shelling out $500,000, with neighboring Cole County and Jefferson City, the state capital, each pledging $100,000.

In return, American is bringing two daily nonstop flights to and from Dallas/Fort Worth, and one daily nonstop route to Chicago O'Hare International Airport on 50-seat regional passenger jets, starting in mid-February. The city will also waive two years of landing fees and facility rents, valued at $250,000, and chip in $400,000 of free advertising through a deal with a local broadcaster.

American spokesman Matt Miller declined comment, citing a company policy of not discussing its revenue guarantees.

Columbia's air-service links to the southeastern United States aren't completely severed. In November, Frontier Airlines will begin offering twice-weekly flights to Orlando, Fla., on 138-seat jets.

Mike Boyd, a Colorado-based aviation consultant who previously worked with Columbia but wasn't a part of the Delta and American negotiations, said the city still came out ahead despite Delta's departure.

It's the only airport I know where airlines are falling over themselves to get there, said Boyd, adding that United Airlines was also interested in a Chicago connection. I think other cities would kill to get into this situation.

If American comes to you and says, 'I want to fly to your community,' the city can't say, 'We don't want you, he continued. You have to take what you get, and accept the consequences.